1/23/2009 @ 7:30PM

Intel's Unusual Executive Move

BURLINGAME, Calif.–
Intel
said Friday that former Chief Executive
Craig
Barrett
Craig Barrett
, 69, will retire from his current role as chairman and member of its board of directors in May.

Independent director Jane Shaw, also 69, will become nonexecutive chairman in May. Shaw, who joined Intel’s
board in 1993, was chairman and chief executive of Aerogen, a medical devices company, between 1998 and 2005.

Shares of Intel closed up 30 cents, or 2.34%, to $13.12 in trading Friday.

The appointment of Shaw is a departure for the chip maker, which in the past has moved its chief executive into the chairman’s role in an orderly, almost stately succession process. (See “Intel’s Time For Change.”)

In 2005, Barrett replaced Andy Grove as chairman after replacing him as chief executive in 1998. Barrett was then succeeded by Paul Otellini as CEO. Similarly, Grove had replaced Intel co-founder Gordon Moore as chairman in 1997 and then as chief executive in 1987.

Barrett, who served as Intel chief executive between 1998 and 2005, had long been known for investing in new technologies during downturns, a nervy strategy in the chip maker’s capital-intensive business.

A manufacturing expert who taught at Stanford University, Barrett joined Santa Clara, Calif.-based Intel in 1974 to help build up its manufacturing smarts, leading the effort to blunt the threat from Asian manufacturers in the 1980s. He also helped create the company’s philosophy of “copy exactly,” which allowed Intel to move its factories, or fabs, into risky, cutting-edge manufacturing processes by insuring that processors were built exactly the same way at each fab.

“They recognized it wasn’t enough to be good at designing chips. They had to be good at manufacturing them; they had to have a much wider and deeper scale,” says semiconductor industry analyst Nathan Brookwood.

It’s a philosophy that has spilled over to Intel’s wider culture. “You can go to any Intel facility, whether it’s in Santa Clara or Oregon or Israel, and it’s hard to tell where you are,” Brookwood says. “If you didn’t have the windows to look out of, you would never know.”

Barrett regularly speaks at technology industry events about the need to provide information technology to developing nations (see “Intel’s Barrett Pushes Charities, Not Chips”). Barrett is the chair of the U.N. Global Alliance for Information and Communications Technology and Development.

Intel, however, faces weakening demand for its product amid a broad economic slump, in addition to longer-term challenges as the enormous company searches for a growth strategy.

The announcement of Barrett’s departure comes after Intel said Wednesday it will close three facilities in East Asia, halt production at a fabrication facility in Hillsboro, Ore., and end wafer production operations at a facility in Santa Clara, Calif., affecting between 5,000 and 6,000 jobs.

Two days before the facility announcements, Intel slashed its processor prices by as much as 45% after releasing disappointing earnings. The company reported that sharply lower demand for its products had cut sales 24% and operating income 49% from the year-ago period.

Intel, however, appears to be moving ahead with plans to begin building a new generation of processors with features as tiny as 32 nanometers wide. These processors should be able to do more work using less power. Intel said it plans to spend $5.4 billion in research and development in 2009, and reduce its capital spending only slightly in 2009.

The company also noted that it expects profit margins to dip in the current quarter, due in part to start-up costs for the 32 nanometer process.

Intel, however, has been struggling for years to translate its dominance of the lucrative microprocessor business into new growth opportunities. Under Otellini, the company began a restructuring program in 2006 that has so far reduced Intel’s costs by $3 billion, thanks partly to layoffs.

Intel also launched a new line of low-cost, low-power processors last year, dubbed Atom. Atom sales surged 50% to $300 million during Intel’s latest quarter, thanks to surging demand for low-cost “netbooks” cranked out by
Dell
, Acer,
Hewlett-Packard
and others.

Nevertheless, Intel’s shares have slumped 34.28% over the past year, 58.65% over the past five years and 59.34% over the past decade.